LLC is an acronym that stands for limited liability company. This is a legal designation for a single- or multiple-owner business that has been formally registered as an LLC in a state. This setup has pros and cons relative to sole proprietorships, partnerships and corporations.

LLC Pros

A primary reason for a small-business owner to elect an LLC structure is the broad liability protection it affords. In general, the business is treated as a separate entity from its owners. This means your personal assets aren't normally at risk if the business is liable for injury or debt. Additionally, LLCs are taxed as pass-through entities, meaning the company itself doesn't pay taxes. Instead, the owners of the business pay taxes on their portions of the income. This is different than corporations, where the business and its owners both face taxes.

Cons

A primary drawback for people in choosing an LLC over a sole proprietorship is the LLC's formality. You have to file legal paperwork and maintain separate bank accounts and financial records, which isn't the case for an individual with a sole proprietorship. If you intend to take on investors, LLCs face challenges in that they are a relatively new business structure, and legal contracts are still evolving. Additionally, even with an LLC, if you are found personally negligible in a lawsuit, your assets may still be at risk.